Nnews
Science | DOI: 10.1145/1467247.1467252
Gregory Goth
Betting on ideas
Advanced computational models are enabling researchers
to create increasingly sophisticated prediction markets.
The U.S. pReSiDential
elections offer social scientists
and statisticians many avenues for dissecting the
mood of the nation. Among
the well-publicized polls and surveys conducted by well-known and
well-funded organizations, a lower-key method of capturing the likely
outcome of the election—prediction
markets—is steadily gaining attention
from academic researchers and business leaders for use beyond elections,
movie box-office earnings, and sporting contest outcomes.
Like other futures markets, prediction markets offer participants the opportunity to trade on their hunches,
the difference being that a prediction
market offers payout odds based on aggregate hunches of forthcoming events
instead of prices.
screenshot from intrade.com
Prediction markets are gaining interest because the Internet allows greater
worldwide access to them, as well as
to the ever-increasing amount of data
stored on any topic imaginable (which
theoretically allows participants to
make more informed predictions, individually and in aggregate). These factors,
plus the enormous amount of computing power that will make it possible to
instantly calculate exponentially small
odds, are stimulating new research on
advanced computational models in prediction markets. These models could
be capable of analyzing entire events
such as the annual NCAA collegiate
basketball tournament, which begins a
63-game schedule with 263 possible outcomes by the tournament’s end.
“I still think it’s a growth area,” says
David Pennock, a principal researcher
at Yahoo!, who is working on expanding the capabilities of prediction market outcomes. “Yes, prediction markets get lots of attention every four
years during a presidential election,
but every election cycle, they get more
attention than they did the previous
one. The perception of them is growing, startup companies using prediction markets are emerging, and there
are a lot of research questions and industry growth still.”
In fact, Pennock says, the U.S. Commodities Futures Trading Commission
(CFTC) is considering expanding the use
of prediction markets beyond low-bud-get research functions or “play money”
markets to regulated public exchanges
the world’s largest prediction market, intrade, offers bets on everything from the academy
awards to whether the higgs boson particle will be observed before or on a certain date.